Stocks closed lower yesterday, but recouped roughly half to two-thirds of their intraday losses by the close.

Iran drone strikes on the U.S. Embassy in Saudi Arabia, two direct hits to Amazon AWS data centers in the UAE, and a drone strike in Bahrain, near an AWS facility, which was taken offline, rattled the markets.

Concerns over shipping lanes in the Strait of Hormuz and near it, also unnerved markets. Iran said it would "set fire" to any ship attempting to pass. And that they would not allow "a single drop of oil" to leave the region. (Roughly 20% of global oil and gas supplies normally pass thru there.)

As a result, the U.S. said it would provide political risk insurance for all maritime trade, especially energy shipments. And that the U.S. Navy "will begin escorting tankers through the Strait of Hormuz, if necessary."

In spite of the ongoing conflict, and the real danger Iran's missile attacks on others in the region pose, the threat of a widening conflict, beyond that of Iran and its immediate proxies, remains mostly contained. And that kept market fears in check.

Not much in the way of economic reports out yesterday. But today we'll get MBA Mortgage Applications, the ISM Services Index, the PMI Composite report, the Beige Book report, and the ADP Employment report.

The ADP report is often considered a barometer for what the official Employment Situation Report (by the Bureau of Labor Statistics or BLS) will say later in the week. Although, ADP does have a spotty track record of foreshadowing what the BLS will say. Nonetheless, all eyes will be on Friday's labor report.

In the meantime, while Middle East headlines will continue to influence the market, the economy's underlying fundamentals are strong. Same goes for corporate earnings.

And the AI trade is also alive and well. That was underscored last week when NVIDIA reported stellar earnings, but sold off afterwards, dragging much of the AI trade with it. But it was a silly reaction. They posted a quarterly EPS growth rate of 90.6% vs. this time last year, and a sales growth of 73.2%. They also guided Q1'26 revenue higher with a midpoint forecast of $78 billion, which is 8.14% higher than the analyst estimates of $72.13B. That makes it 11 quarters in a row of at least double-digit growth rates, showing once again, the growth story in AI is real, driven by incredible demand.

We are still in the relatively early stages of the transformational AI boom. And I believe it has years more to go. Companies like NVIDIA, for example, are selling the AI infrastructure (chips, servers, AI training systems). Others have to buy these products to build their AI models and tools. Then those tools are sold to others to build their products, or used internally to build their own products.

We are in the infrastructure phase right now and it's accelerating. The tools and models phase are in the early innings. And the application and productivity phase has really just begun. That's where the real broader economic payoff happens. And the winners will multiply as the cycle moves thru its stages.

The current volatility can make it tough to be in the market. But regional conflicts usually only have a short-term impact. In fact, over the last 40 years of geopolitical events and conflicts, markets usually bounce back quite fast.

So, keep your eye on the bigger picture. Because the prospects for growth have the potential to send stocks soaring this year.

See you tomorrow,